By: John R. Pace, CPA, CVA | Partner and Director of Outsourced Accounting and Advisory Services
Organizations who do business with the federal government or accept federal funding are often discouraged by some in the industry from using Intuit QuickBooks for their accounting. However, our experience serving government contractors has taught us that QuickBooks is often a good solution. In fact, service-based government contractors with annual revenue in the $15-$20 million range may find that QuickBooks actually helps them successfully prepare for and pass Defense Contract Audit Agency (DCAA) accounting system (SF 1408) audits.
Advantages and Disadvantages of QuickBooks
Available for decades, QuickBooks is perhaps one of the best-known accounting software packages for small and medium-sized companies. Before selecting a new accounting system, government contractors should consider the many advantages of QuickBooks, which offers both cloud-based and on-premises (desktop) versions of their software.
- Inexpensive to purchase and operate
- Extensive marketplace of extremely useful third-party applications
- Wide availability of accountants well-versed in QuickBooks
- Flexible, but not so flexible as to require challenging and expensive software integration
- Cloud-based access available
With these benefits come some noteworthy drawbacks to consider.
- May not be the right solution for larger enterprises, especially those with a large number of contracts and complex billing structures requiring flexibility;
- Does not include an onboard labor allocation model so this must be done in Excel or third party application;
- Does not include an onboard indirect rate model so this must be done in Excel or third party application;
- The online version is organized differently than the desktop version. This may discourage seasoned desktop users and is likely the source for much of the criticism levied at QuickBooks Online:
- It does not include onboard project management, a forecasting tool, or an onboard indirect rate or incurred cost submission reporting capability; and
- QuickBooks may not offer enough reporting dimensions for entities with complex work breakdown structures (WBS)
Based on our experience, QuickBooks has proven to be an effective accounting software solution when appropriately tailored to comply with DCAA standards. If your organization determines QuickBooks is the right choice, it is important to note that the package does not include a DCAA-compliant chart of accounts, so you have to build your own. Additionally, QuickBooks also does not come with a DCAA-compliant timekeeping system. The online version recently added the DCAA-compliance TSheets (for an additional fee), but other options are available through the Intuit Marketplace if TSheets user interface is not right for your organization.
Support for QuickBooks
Over the years, GRF has set up accounting systems for many government contractors, most of which have been either QuickBooks Desktop or QuickBooks Online. One hundred percent of these systems undergoing an accounting system audit passed with no significant issues found. For example, GRF supported a Washington, DC-based government contractor as it moved from QuickBooks Desktop to QuickBooks Online. The GRF team updated and reorganized the chart of accounts to track direct, fringe, overhead, general & administrative, and unallowable costs. We then trained the client on using the “class” feature (just one of the available options) to track and report project costs. GRF also implemented TSHEETS for timekeeping, updated the client’s relevant policies and procedures manual, and created a Microsoft Excel-based indirect rates calculation model. These changes together increased the accuracy and efficiency of the client’s accounting system while improving their compliance with DCAA guidance on sufficient accounting systems.
If your organization is considering a more enterprise level accounting system, consulting a CPA with experience working with government contractors is a great first step toward identifying the right solution. For more information or guidance on accounting system selection, contact John R. Pace, CPA, CVA, Partner and Director of Outsourced Accounting and Advisory Services at 301-951-9090 or firstname.lastname@example.org.